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B2B Marketplaces – Limits of the Marketplace model for Global Account customers (1/2)

Blog
29th November 2019

In B2B distribution, the new challenge is to massively expand the product offering. The Marketplace model has rapidly prevailed in this context. It is now showing some limitations, as François Duranton, CEO of ZeTrace, explains in this first column.

B2B marketplaces are gathering momentum! They are currently winning VSE/SME targets, especially for service-sector and non-strategic purchases.

But it is true that they are still facing some difficulties with Global Account and Government Contract customers, particularly for strategic or primary purchases.

Before going into detail regarding these difficulties, we may specify that there are three models for massive expansion of the product offering:

  • the industrialized Drop Shipping model, where a distributor shows its customers the catalogues of suppliers who will perform delivery;
  • the Marketplace model which establishes contact between vendors and customers around a trusted third-party operator; and
  • a combination of these two models.

The advantages and disadvantages of these models are very different. For Global Accounts and Government Contracts, the Marketplace model has five main limitations.

1. Risk of legal requalification of the marketplace

On paper, the Marketplace model enjoys an excellent image. For example, it is very efficient for the delegation of tasks to the vendors – which take charge of catalogue onboarding, stock and price management, orders management and customer service, etc.

But the marketplace is based on a special business model, which could pose a problem for Global Account and Government Contract customers.

For example, the concept of personalized prices or prices negotiated with the operator is problematic, because, on a marketplace, the price is usually controlled by the vendor. But, if the marketplace imposes negotiated prices on its vendors, the latter could blame it for not complying with the standard intermediation model, i.e. doing “disguised drop shipping” – and this requalification could take place before a court.

Just recently, Cdiscount avoided a ruling of liability on counterfeit products sold on its Marketplace, in particular because it had in no way changed the information provided by the vendor, and had therefore remained in a role of hosting service and not publisher.

To meet the needs of these customers and to reduce the legal risk, the operator will therefore be obliged to take on numerous responsibilities (product compliance, tax reporting, customer relationships, etc.). And this complicates the pure marketplace model and has an impact on its profitability.

2. IT problems in ensuring an assortment for each customer

The Global Account and Government Contract customers tend to compartment their procurements: certain products, at a certain price, from a certain supplier.

The marketplace must therefore filter its assortments according to the customers who log on, and combine them with the negotiated prices.

This situation is not always well managed by commercially available solutions.

3. Constraint of the single invoice

For Global Account and Government Contract customers, they dread having numerous suppliers. They want to rationalize the full acquisition cost – which includes invoice processing, order forms, reconciliation of payments and deliveries, etc.

Hence the goal of reducing invoicing. But in the marketplace model, the current standard is as follows: if there are five vendors in a given order, that will result in five invoices.

Firms such as Webhelp Payment Services propose packaged third-party invoicing solutions. With this system, the operator signs an invoicing mandate with each of the vendors, which authorize the marketplace operator to issue in their name and on their behalf the invoices produced for the end customer.

The advantage of this solution is good standardization of invoices, which become easier to integrate by the customer and by the platform.

For example, the operator can compile all the monthly invoices in a statement of invoices, which greatly simplifies administration and reconciliation tasks at the customer level.

There is a limitation, however: certain auditors could consider that this invoicing becomes a “hotchpotch” and demand a personal account for each supplier. Ultimately, everything depends on the customer’s accounting strategy.

The only alternative solution to produce a single invoice is to switch to a dropship model, possibly supported by the marketplace information system: the operator creates the vendor listing catalogue, manages sales to the end customer and sends the order to the vendor, which manages dropship delivery to the end customer. This solution amounts to taking responsibility for the sale on the operator side (product compliance, taxes, etc.).

4. Rationalization of the supply chain

Global Account and Government Contract customers want to rationalize product delivery. Very often, they impose time slots for delivery, together with penalties. This situation is complex to manage for a marketplace in which each vendor manages their shipments.

There are solutions to the supply chain problem, such as groupage of deliveries in the warehouses of the marketplace distributor (cross docking). Then, this distributor manages deliveries in the time slots agreed with the customer.

However, these solutions are complex to implement, more costly, and they entail longer delivery times.

5. Globalized customer service

Another requirement: customer service will have to operate in the language and in the time slots wanted by the Global Account or Government Contract customer.

Possible case: a German vendor must ensure relations with a French marketplace customer. If this vendor is not capable of this, there must be a replacement solution.

In this respect, the marketplace must take charge of the costs that on paper it was supposed to save.

In the second article of this column*, I invite you to discover that the conventional opposition between Marketplace and Drop Shipping deserves to be left behind.

 

François Duranton, CEO of ZeTrace

 

2019: marketplaces set to take the B2B market by storm

B2B Marketplaces are blossoming



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